Intel should get rid of chip production, but it won’t be done that easily, experts say

At yesterday’s UBS technology conference, Intel acting CEO David Zinsner said the company intends to stick to its planned development path, which includes both the production of processors and the provision of contract manufacturing services for chips. Meanwhile, some experts say it will be easier for the processor giant to survive without its troubled manufacturing business.

Image Source: Intel

At the very least, Creative Strategies representative Ben Bajarin, from the pages of the Financial Times, states that if one were to focus solely on “paper indicators,” Intel, deprived of its production capacity, would show a much higher profit margin, and its products would look better. Citi experts backed up that view by saying that moving away from in-house chip production “would be in the best interests of Intel shareholders.” At the same time, they believe that the company should be headed by a person who has experience working in it.

Last year, Intel’s manufacturing division suffered $7 billion in losses. Returning it to profitability will be very difficult and may require tens of billions of dollars in investment. The company’s problems have been accumulating for years; it was unable to gain a foothold in the smartphone market with any of its solutions and missed the dawn of the era of artificial intelligence systems. The worst thing for Intel’s manufacturing activities, of course, was the loss of technological leadership in the fight with TSMC. After the resignation of CEO Patrick Gelsinger in what looked like a retirement, Intel’s stock price continued to decline for the third trading session in a row. Since the beginning of the year, Intel shares have fallen by more than 58%, and its capitalization now does not exceed $100 billion.

By August, the inconsistencies within Intel’s leadership began to become apparent to outside observers, and the company was forced to announce a 15% workforce cut and delays in construction of facilities in Europe. The company’s production division was supposed to gain more independence, according to management’s plan.

The history of the semiconductor industry knows an example of abandoning production capacity; in 2008, AMD decided to take this path. Its former Dresden facilities are now owned by GlobalFoundries, which still supplies some of its products, but the most sophisticated and advanced chips for AMD are made by Taiwanese company TSMC. If Intel now decides to entrust the latter with the production of the bulk of its products, which should enter the market before 2026, then it has very little time left to make a decision. However, Intel’s temporary CFO David Zinsner is still full of optimism in connection with the company’s upcoming transition to producing products using Intel 18A technology. Next year, the brand’s products will begin to return to the Intel assembly line, since TSMC is currently entrusted with the production of Lunar Lake and Arrow Lake processor crystals.

In such difficult conditions, the problem for Intel becomes obtaining subsidies from the US authorities under the “Chip Act” in the amount of about $7.9 billion, since they should be used specifically for the development of its own production sites in the United States. If Intel divested its manufacturing division altogether, it could complicate growth initiatives across the U.S. semiconductor industry. At the same time, Intel is unlikely to be able to quickly find a buyer for its production assets. The potential new owner must not only be able to buy them, but also have a clear idea of ​​what to do with them next.

TSMC and Samsung are not suitable buyers due to their origin, since the first is registered in Taiwan, and the second in South Korea. Institutional investors such as Japan’s SoftBank or Middle Eastern investment funds are also less clear-cut candidates. Worse, TSMC may not be able to cope with a surge in orders from Intel, and there will be a shortage of chips throughout the market. According to representatives of the Futurum Group, the next couple of weeks will be decisive for Intel in choosing a further development strategy.